nep-net New Economics Papers
on Network Economics
Issue of 2015‒05‒30
twelve papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. The network at work: Diffusion of banana cultivation in Tanzania By Anna Folke Larsen
  2. Social Interactions, Mechanisms, and Equilibrium: Evidence from a Model of Study Time and Academic Achievement By Tim Conley; Nirav Mehta; Ralph Stinebrickner; Todd Stinebrickner
  3. Peer Effects in Endogenous Networks By Timo Hiller; Timo Hiller
  4. Development Blocks in Innovation Networks. The Swedish Manufacturing Industry, 1970-2007 By Taalbi, Josef
  5. A Normative Analysis of Local Public Utilities: Investments in Water Networks By Alberto Cavaliere; Mario Maggi; Francesca Stroffolini
  6. Identifying interbank loans, rates, and claims networks from transactional data By León, C.; Cely, Jorge; Cadena, Carlos
  7. Machines in a Cloud – or a Cloud in Machines? Emerging New Trends of the Digital Platforms in Industry and Society By Mattila, Juri; Seppälä, Timo
  8. Potential Effects of New Zealand's Policy on Next Generation High-Speed Access Networks By Winkler, Kay
  9. Should Dark Pools be Banned from Regulated Exchanges? By Nathalie Oriol; Alexandra Rufini; Dominique Torre
  10. Process Systems Engineering as a Modeling Paradigm for Analyzing Systemic Risk in Financial Networks By Richard Bookstaber; Paul Glasserman; Garud Iyengar; Yu Luo; Venkat Venkatasubramanian; Zhizun Zhang
  11. Net neutrality and inflation of traffic By Peitz, M.; Schütt, F.
  12. How Likely is Contagion in Financial Networks? By Paul Glasserman; Peyton Young

  1. By: Anna Folke Larsen (Department of Economics, University of Copenhagen)
    Abstract: This paper investigates the role of networks for diffusion of improved banana cultivation introduced by an agricultural project in Tanzania. In the existing literature on networks and technology adoption, network effects are interpreted as learning. I show that a farmer's network can affect the adoption of a new crop not only through social learning, but also by providing necessary inputs for adoption. I set up a simple model for adoption and derive similar model implications for the provision of either inputs or information through the network. Empirically, I find that a farmer is 37 percentage points more likely to adopt banana cultivation if there is at least one project participant growing bananas in the farmer's network. I use three falsication tests to support causal interpretation of the network effect on adoption. Provision of inputs (banana seedlings) through networks is found to play an important role for the network effects found.
    Keywords: Technology adoption, networks, agriculture, Tanzania, Africa
    JEL: D83 O13 O33 Q12 Q16
    Date: 2015–05–25
  2. By: Tim Conley (University of Western Ontario); Nirav Mehta (University of Western Ontario); Ralph Stinebrickner (Berea College); Todd Stinebrickner (University of Western Ontario)
    Abstract: We develop and estimate an equilibrium model of study time choices of students on a social network. We examine how network structure interacts with student characteristics to affect academic achievement. Due to data limitations, few papers examine the mechanisms through which peer effects operate. The model is designed to exploit unique data collected in the Berea Panel Study. Study time data allow us to quantify an intuitive mechanism for social interactions: the cost of own study time may depend on friend study time. Social network data allow study time choices and resulting academic achievement to be embedded in an equilibrium framework. We find friend study time strongly affects own study time, and, therefore, student achievement. Not taking into account equilibrium behavior would drastically understate the effect of peers. Sorting on friend characteristics appears important in explaining variation across students in study time and achievement, and determines the aggregate achievement level.
    Keywords: Social Networks; Peer Effects; Homophily; Time-use
    Date: 2015
  3. By: Timo Hiller; Timo Hiller
    Abstract: This paper presents a simple model of strategic network formation with local complementarities in effort levels and positive local externalities for a general class of payoff functions. Results are obtained for one-sided and two-sided link creation. In both cases (pairwise) Nash equilibrium networks are nested split graphs, which are a strict subset of core-periphery networks. The relevance of the convexity of the value function (gross payoffs as a function of neighbours' effort levels when best responding) in obtaining nested split graphs is highlighted. Under additional assumptions on payoffs, we show that the only efficient networks are the complete and the empty network. Furthermore, there exists a range of linking cost such that any (pairwise) Nash equilibrium is inefficient and for a strict subset of this range any (pairwise) Nash equilibrium network structure is different from the efficient network. These findings are relevant for a wide range of social and economic phenomena, such as educational attainment, criminal activity, labor market participation, and R&D expenditures of firms.
    Keywords: Strategic network formation, peer effects, strategic complements, positive externalities.
    JEL: D62 D85
    Date: 2013–09
  4. By: Taalbi, Josef
    Abstract: The notion of development blocks suggests the co-evolution of technologies and industries through complementarities and the overcoming of imbalances. This paper studies groups of closely related industries and their co-evolution in the network of Swedish product innovations, by combining statistical methods and qualitative data from a newly constructed innovation output database, SWINNO. The study finds ten sets of closely related industries in which innovation activity has been prompted by the emergence of technological imbalances or by the exploitation of new technological opportunities.
    Keywords: Development Blocks; Community Detection; Network Analysis; Technological Imbalances
    JEL: N1 N7 O3
    Date: 2015–05–23
  5. By: Alberto Cavaliere; Mario Maggi; Francesca Stroffolini
    Abstract: We analyze rehabilitation investments in a regulated water industry with perfectly inelastic demand. We compare alternative organizational solutions for local provision (municipalization, corporatization and privatization), though subject to a common regulatory mechanism. We can then assess the effects of incentive regulation in public firms and find that even benvolent politicians always stick to the price-cap, in order to save on distortionary taxation. However, incentives to invest result to be excessive only in private firms, as the cost of capital is accounted differently by public and private undertakings. We also provide a theory of mixed firms, based on strategic interaction between politicians and managers, which contributes to endogenously explain partial privatization and minority participation by private stockholders. In this last case incentives to invest appear to be driven just by governance and ownership reasons.
    Keywords: price-cap regulation, mixed firms, partial privatization, water networks, inelastic demand, natural monopoly
    JEL: H42 L32
    Date: 2015
  6. By: León, C.; Cely, Jorge; Cadena, Carlos
    Abstract: We identify interbank (i.e. non-collateralized) loans from the Colombian large-value payment system by implementing Furfine’s method. After identifying interbank loans from transactional data we obtain the interbank rates and claims without relying on financial institutions’ reported data. Contrasting identified loans with those consolidated from financial institutions’ reported data suggests the algorithm performs well, and it is robust to changes in its setup. The weighted average rate implicit in transactional data matches local interbank rate benchmarks strictly. From identified loans we also build the interbank claims network. The three main outputs (i.e. the interbank loans, the rates, and the claims networks) are valuable for examining and monitoring the money market, for contrasting data reported by financial institutions, and as inputs in models of financial contagion and systemic risk.
    Keywords: Furfine's method; interbank; IBR; TIB
    JEL: E42 E44
    Date: 2015
  7. By: Mattila, Juri; Seppälä, Timo
    Abstract: In the beginning of the 1990’s, various fragmented information networks of the Internet were combined into one integrated network of systems. As a result, the commercial utilization of the Internet boomed, creating completely new business models and economic structures in the process. A similar reaction is now anticipated from the digitalization of industry and society at large. However, the big question is, how can all the separately structured, isolated systems be fused into one seamless network of systems? So far the problem has mainly been addressed from the stand-point of centralized and decentralized system architectures. Our analysis shows, however, that completely new and innovative technological approaches, such as block chain technology, are emerging to address this problem. These new distributed architecture solutions may completely revolutionize the anticipated structures and business models of the digitalization currently in progress, as they allow machines to autonomously share much more than just data, e.g. computational capacity, storage space or even electric power. As a result, understanding digitalization in its full capacity requires a systems approach and new kind of higher-level thinking on the scale of a network of systems.
    Keywords: digitalization, industrial Internet, platforms, block chain
    JEL: L14 L15 L86 L96 O33
    Date: 2015–05–18
  8. By: Winkler, Kay
    Abstract: New Zealands strategy to deploy ultra-fast next generation access networks (NGA) on the basis of fibre to the home (FTTH) to the majority of the population by 2019 involves specific public private partnerships for dedicated roll-out areas that are supported with substantial financial aid by the Crown. This article explores in which way this strategy can be effective and whether it is able to accelerate consumer demand for NGA. Several empirical studies relating to the deployment and uptake of broadband technology consistently reveal factors which are decisive for the diffusion of broadband technologies in developed countries. From the supply-side perspective, the regulatory environment, associated incentives to deploy new infrastructure, and government stimuli can be seen as important determinants. However, the diffusion of a new technology in a given market requires consumer acceptance. The consumer uptake of ultra-fast broadband (UFB) access will depend on the increase in speed in relation to the existing access technology, and the existence of applications requiring this increase. Taking these factors into account, some potential problems with New Zealands roll-out plan can be identified. It seems conceivable that the driving factor for fast broadband uptake in New Zealand is, under the current set of applications, the migration from low bandwidth broadband to higher bandwidths required for video streaming, but not necessarily to ultra-fast broadband. In that sense, a diminishing marginal return of speed may be assumed. Further, the regulatory environment might cause adverse effects for competing broadband networks that are not subsidized, such as the recently rolled out VDSL network and 4G mobile networks. Moreover, the incentives of retail service providers to offer fibre based internet products are not clear cut. Because of vertical separation they are not invested in network deployment. An empirical analysis of recent UFB uptake data could show whether these assumptions are valid.
    Keywords: ,
    Date: 2015
  9. By: Nathalie Oriol (University of Nice Sophia Antipolis, France; GREDEG CNRS); Alexandra Rufini (University of Nice Sophia Antipolis, France; GREDEG CNRS); Dominique Torre (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: European financial markets experiment a strong competition between historical players and new trading platforms, including the controversial dark pools. Our theoretical setting analyzes the interaction between heterogeneous investors and trading services providers in presence of market externalities. We compare different forms of organization of the market, each in presence of an off-exchange and an incumbent facing a two-sided activity (issuers and investors): a consolidated exchange with the incumbent only, and fragmented exchanges with several platforms, including lit and dark pools, in competition for order ows. By capturing investors from off-exchange, dark trading may enhance market externalities and market stakeholders' welfare.
    Keywords: microstructure, dark pools, Over-The-Counter market, liquidity, market externalities, two-sided markets
    JEL: G10 D62
    Date: 2015–05
  10. By: Richard Bookstaber (Office of Financial Research); Paul Glasserman (Office of Financial Research); Garud Iyengar (Columbia University); Yu Luo (Columbia University); Venkat Venkatasubramanian (Columbia University); Zhizun Zhang (Columbia University)
    Abstract: Financial instability often results from positive feedback loops intrinsic to the operation of the financial system. The challenging task of identifying, modeling, and analyzing the causes and effects of such feedback loops requires a proper systems engineering perspective lacking in the remedies proposed in recent literature. We propose that signed directed graphs (SDG), a modeling methodology extensively used in process systems engineering, is a useful framework to address this challenge. The SDG framework is able to represent and reveal information missed by more traditional network models of financial system. This framework adds crucial information to a network model about the direction of influence and control between nodes, providing a tool for analyzing the potential hazards and instabilities in the system. This paper also discusses how the SDG framework can facilitate the automation of the identification and monitoring of potential vulnerabilities, illustrated with an example of a bank/dealer case study.
    Keywords: Process Systems Engineering, Systemic Risk, Financial Networks
    Date: 2015–02–11
  11. By: Peitz, M.; Schütt, F. (Tilburg University, TILEC)
    Abstract: Under strict net neutrality Internet service providers (ISPs) are required to carry<br/>data without any differentiation and at no cost to the content provider. We provide a simple framework with a monopoly ISP to evaluate different net neutrality rules. Content differs in its sensitivity to delay. Content providers can use congestion control techniques to reduce delay for their content, but do not take into account the effect of their decisions on the aggregate volume of traffic. As a result, strict net neutrality often leads to socially inefficient traffic inflation. We show that piece-meal departures from net neutrality, such as transmission fees or prioritization based on sensitivity to delay, do not necessarily improve efficiency. However, allowing the ISP to introduce bandwidth tiering and charge for prioritized delivery can implement the<br/>efficient allocation.
    Keywords: Net neutrality; network congestion; telecommunications,; uality of service
    JEL: L12 L51 L86
    Date: 2015
  12. By: Paul Glasserman (Columbia Business School, Columbia University); Peyton Young (Office of Financial Research)
    Abstract: Interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. We estimate the extent to which interconnections increase expected losses, with minimal information about network topology, under a wide range of shock distributions. Expected losses from network effects are small without substantial heterogeneity in bank sizes and a high degree of reliance on interbank funding. They are also small unless shocks are magnified by some mechanism beyond simple spillover effects; these include bankruptcy costs, fire sales, and mark-to-market revaluations of assets. We illustrate the results with data on the European banking system.
    Keywords: systemic risk, contagion, financial network
    JEL: D85 G21
    Date: 2013–06–21

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